Economic Update: The Impact of Ramadan and Idul Fitri on Economic Activity in Indonesia
The holy Islamic fasting month (Ramadan) and the weeklong celebrations that mark the end of the Ramadan (known as Idul Fitri or Lebaran in Indonesia) is important for the Indonesian economy as it is a period when people consume more than usual.
During the Ramadan month, many people organize dinner parties in the evening to break the fast together. In the context of these occasions, people buy more food, and quite often new clothes, bags and headscarves (particularly ahead of Idul Fitri, there is high demand for these items).
Meanwhile, in the context of the weeklong Idul Fitri holiday (a national holiday), there are millions of people leaving their homes in the urban and suburban areas of the country to visit their places of origin for a few days (bringing gifts with them). This typically gives rise to a great circulation of money around the Archipelago (from the urban areas to the suburban and rural areas).
What helps consumption during this period is that companies (including the state-owned companies) and all government institutions need to pay out the 13th month wage (usually one or two weeks before the start of Idul Fitri). Full-time employees who have worked (at least) 12 months at the company can expect a bonus with the equivalent of one month’s salary, while those who have worked less than 12 months will have their bonus calculated on a pro-rate basis.
Meanwhile, the Indonesian government announced it will disburse IDR 7.8 trillion (approx. USD $520 million) in social aid ahead of the Ramadan and Idul Fitri period as the poorer segments of society typically struggle with inflation around this time (with food prices particularly being volatile). Social aid comes in the form of free rice, eggs, and chicken meat.
Moreover, at the end of December 2022, the Indonesian government scrapped all social and business restrictions, and so there certainly is more room to consume at the moment (compared to the 2020-2022 period), although some people might still be somewhat cautious (avoiding crowds of people; which is a wise decision for those with fragile health). In fact, Indonesian President Joko Widodo signed a regulation a few weeks ago in which it is forbidden for ministers (as well as regional leaders) to organize Ramadan gatherings (that attracts crowds of people) as Widodo still fears new waves of COVID-19.
So, all the factors mentioned above allow room for accelerated consumption across Indonesia. And considering household consumption is the biggest contributor to the country’s gross domestic product (GDP), the whole economy will feel the impact.
This is the introduction of the article. It discusses the following:
- According to recent surveys, will households spend more during this year's Ramadan and Idul Fitri? And, how can the MSME sector tap this festive season's potential?
- Although there is an expected increase in demand for cash money in society, the latest retail sales data still suggest that purchasing power has not recovered to pre-COVID-19-crisis levels;
- The latest consumer confidence data and car sales;
- How the mudik tradition impacts on the Indonesian economy;
- The latest outlooks of the OECD and IMF on the Indonesian economy.
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